BANGALORE: The Karnataka government appears reluctant to host a chip fabrication facility, two of which received in-principle approvals from the Centre on Thursday. The two together will involve an investment of Rs 50,000 crore.

Bangalore is one of the world's major chip design services hubs. The state was the first to enact a semiconductor policy. Yet, it sees a chip fab as an indulgence.

I S N Prasad, who was the state's IT secretary till recently, was quoted as saying (when he was with the IT department) that the fab would place an inordinate demand on water resources, which the state could not afford. The new secretary, Srivatsa Krishna, is less categorical, but non-committal nonetheless. "The issue will be reviewed after taking into account the specifics of the Union Cabinet's approval and the Karnataka government's requirements and priorities," he said.

So, for now, it looks like the two proposed projects - one by the consortium of Israel's Tower Semiconductor, IBM and Jaypee Associates, and the other by the consortium of ST Microelectronics and Hindustan Semiconductor Manufacturing Corp - could go to Gujarat and Noida.

"The investments in these fabs are so huge that promoters cannot hope to take too much risk. So they will go to states that are the most hungry for them," said P V G Meon, president of the India Electronics & Semiconductor Association ( IESA).

Fabs indeed require huge amounts of high quality water and power, and any state that hosts them will be expected to significantly subsidize such resources, because no fab can hope to compete globally and become profitable in the absence of government support.

"But they also create an extensive eco-system that can potentially create plenty of both high-skill and low-skill jobs," said Guru Ganesan, the India MD of Arm, the British semiconductor design company whose architectures dominate the mobile device space.

The Centre's decision on Thursday was widely and heartily welcomed by the semiconductor community, given that almost all chips and most electronic products are currently imported. "Setting up of such a high value manufacturing industry as semiconductor chip fabrication will have a truly transformative effect on the overall electronics industry. The historic significance of this approval will be felt for many years to come. Manufacturing in India will soon witness a new frontier," said Aninda Moitra, the India MD of Applied Materials, which makes equipment for semiconductor manufacturing.

"It will be a technological game-changer," said Menon. He said a fab would bring other eco-system players, including equipment suppliers like Applied Materials, Lam Research, KLA-Tencor and Teradyne, those who specialize in creating clean rooms and high tolerance HVAC (heating, ventilation, and air conditioning), sophisticated supply chain players (the industry requires transport and storage of rare gases, for instance).

Ganesan said if the government could simultaneously incentivize and create 30-40 local chip design houses that design chips for India and the world, the fabs would be better utilized and also create a more innovative environment.

For Karnataka, the question is whether the water concerns outweigh these eco-system benefits. "If government desires, it can find solutions to the water and electricity issues," said Ganesan. Another industry observer noted that Vietnam, a country poorer than India, hosted Intel's biggest chip plant, as also some of Samsung's chip facilities. "If Vietnam can do it, why not Karnataka?," he asked.